The London Gateway effect


There are almost two years to go before London Gateway opens, but already the marketing execs are out amongst potential customers talking up their respective ports.

For nigh on two decades Felixstowe has enjoyed its status as the UK’s premier container port unchallenged, and while there is no question of London Gateway taking that mantle overnight, its existence will provide a competitive challenge to Felixstowe the like of which it has not seen since the entrance of Thamesport in 1990.

It is worth recalling that its opening was accompanied by such a precipitous nose-dive in handling rates that “the Thamesport effect”, as it came to be known, was synonymous with introducing a large slab of capacity and the downward effect that had on container handling pricing.

There is no question that executives at Felixstowe owner Hutchison fear that might repeat itself at the end of 2013, when London Gateway is scheduled to open.

The problem is one specific to the port industry – while handling rates can be subject to rapid downwards shifts, the opposite is not true; it is incredibly hard for terminal operators to push rates upwards, even in times when capacity is scarce, which it certainly won’t be for the foreseeable future.

“It’s going to be a bloodbath,” one Felixstowe executive told me privately a couple of months ago.

Given the fact that both parent companies have deep pockets, there ought to be every reason to expect a prolonged battle for shipping line customers.

Except that the nature of supply chains has changed considerably in the intervening years since the initial Thamesport effect. The development of portcentric logistics; the greater interest in which cargo owners are taking in port activities; and the greater involvement of logistics companies and freight forwarders in operations adjacent to container terminals means that terminals’ client bases have expanded vertically.

It is one thing negotiating with a shipping line over handling fees, but quite another if the shipping line’s own customers are demanding it use a certain port against another – and if it doesn’t those shippers will simply switch to a carrier that will call at that port.

What prominent UK freight forwarders – who are already in advanced discussions with London Gateway – believe is that both London and Felixstowe should begin promoting the UK as an alternative distribution point for Europe as a whole, particularly in regards to imports from Asia.

This argument is based on three factors: the UK’s deepsea ports have traditionally been the first call on Asia-Northern Europe and the last call on Northern Europe-Asia strings; the change in value of Sterling against the Euro has given the UK significant operating cost advantages; and thirdly, the ongoing Eurozone crisis profoundly undermines any confidence cargo owners might have about investing in continental distribution hubs.

One freight forwarder recently told me: “London Gateway has the chance to change the distribution system across Europe, and there’s no reason why Felixstowe can’t do the same. Who on earth would invest in distribution centres in the Eurozone at the moment?”

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